It's not all bad - just look at the divis

Thursday 26 January 2012 12:23 BST

Economists and traders in the City have thought and behaved for some months as if the world is coming to an end, but that is not the message delivered by Britain's listed companies. In the past 12 months, they have paid out a record level of dividends. Given that dividends are derived from profits, it suggests this is not a story of a business world on its uppers.

On the negative side, it may in part be a story of a business world that does not know what to do with its money. According to this script, boards do not want to commit to investing in new plant and equipment because, with all the uncertainty around, they can't see where the demand would come from should their company increase its output. So, rather than have the money sitting around earning nothing in the bank, boards reckon they can earn brownie points by increasing the amount they distribute to shareholders.

But even with that caveat, the figures are impressive. According to Capita, which collates and publishes the data, listed companies last year paid out a total of £67.8bn billion. That was an increase on the previous year of no less that 19.4%. Even if the total is adjusted for exceptional items - some special distributions and the resumption of payments from BP as it recovers from the financial impact of the Gulf of Mexico oil spill - the rate of increase was still more than 12%. That is an impressive number in a world of near-zero interest rates and anaemic economic growth, as is the fact that companies raising their dividends outnumber those cutting by a ratio of four to one.

The good news is that this year is expected to be equally good. Capita's forecast for dividends in the coming 12 months is for growth to continue at around 11%, which should be enough to boost the payout in total to £7.5 billion. That equates to an average yield on FTSE 100 companies of 4.5% and FTSE 250 of 3.9%. Should the forecast prove correct - and there is no reason to believe otherwise - the total paid in dividends will go up by 30% in two years. That is a remarkable rate of increase and, given that dividends are the main driver of equity returns in the long term, it ought surely to light a fire under the stock market.

If a 30% rise in dividends does not make shares look cheap, it is hard to see what would.

Hatching a delay for Nest scheme

Pensions Minister Steve Webb said in November that he was looking at the dates by which companies had to enrol their employees into the new national pension scheme, Nest, and yesterday he came up with the result.

There is a slight rephasing for mid-sized businesses but the major change is in giving more time for small businesses, which will only begin to engage with the system in 2015. Webb says this is to help them defer an additional cost and regulatory burden in difficult economic times.

Separately, he said that the date at which the amount of contribution to be paid by all employers will double from 1% to 2% will be put off by 12 months to October 2017, and will go to 3% of payroll 12 months after that.

I have a lot of time for Steve Webb but I do wonder if he is being totally honest about the reasons for delay. Nest has been a long time in the planning, its systems seem as robust as they could be and employees have been given years of notice already that it is on the way.

It is intriguing too that he thinks small firms will still need protection from the harsh economic conditions three to four years from now. George Osborne and David Cameron seem so positive their economic policies will have restored the nation to health long before then.

Second, although it is true that delaying the date of the increase in contributions will save employers money, it will save Government money, too, because pension contributions attract tax relief. We are talking serious money here, given that there should me many millions of people in Nest by that time.

However, though it might just be coincidence, this delay protects government finances from the hit for a further 12 months, deferring it until after the next election. It will therefore make the figures for the budget deficit look several billion pounds better at election time than they would otherwise have done had Government stuck to the original timetable. As they say at Tesco, every little helps.

Into yet another fine mess...

A press release yesterday said that the Financial Services Authority has fined American hedge fund manager David Einhorn £7.2 million for engaging in market abuse.

He had heard in advance that Punch Taverns was planning a rights issue in June 2009, and sold millions of pounds of stock just before the shares collapsed by 30%.

This is the same David Einhorn who in 2002 wrote a (surprisingly easy-to-read) book called Fooling Some of the People All of the Time, in which he told the sad story of how he had sold Allied Capital short literally for years, but failed to cause a collapse in the company's share price because people just would not believe the bad news about the company, however hard he tried to draw it to their attention.

In between, he invested in and was on the board of New Century Financial, a US subprime lender that collapsed and subsequently paid millions of dollars to settle lawsuits alleging all manner of nasty behaviour.